Federal Deposit Insurance Corporation v. Bank of America National Trust and Savings Association

The Federal Deposit Insurance Corporation (FDIC) appeals from a summary judgment in favor of Bank of America, N.T. & S.A., in an action by FDIC to recover moneys deposited with Bank of America by Banco Crédito y Ahorro Ponceno, a Puerto Rican Bank (Banco Crédito) which became insolvent. Bank of America offset its liability for the deposits against the unpaid balance owed to it on a $5,000,000 subordinated capital note issued by Banco Crédito. The trial court upheld the setoff. We reverse.

I. The Facts.

Banco Crédito was organized under the laws of Puerto Rico and regulated by the Puerto Rican Secretary of the Treasury. The depositors of Banco Crédito were insured by FDIC. In 1973 Banco Crédito received permission from the Secretary to issue subordinated capital notes, and on December 27,1973, Banco Crédito and Bank of America entered into a note purchase agreement. Puerto Rican law provides, in pertinent part:

(P.R. Laws Ann., Tit 7, § lll(o))

The note purchase agreement included these provisions and provided for a $5,000,-000 capital note to be issued to Bank of America. The agreement also included the following provision: “Nothing in this agreement shall be deemed any waiver…